14 | Winter Issue 2012 | EGL intergameonline.com | INTERGAMING

Dutch Gaming Authorityinstalled ahead of openingup remote gaming marketBy Justin Franssen and Frank Tolboom of VMW Taxand

On December 20, 2011, the DutchSenate approved the legislativeproposal regarding the introduction

of the Gaming Authority. The newindependent regulatory body will beoperational as of April 1, 2012, and willmake enforcement of the Dutch gamingregulations much more effective.A change in government in October 2010

resulted in plans to modernise the Dutchgaming policy. The State Secretary forSafety and Justice now responsible for thegaming dossier sent a policy note to theHouse of Representatives ("TweedeKamer") on March 19, 2011, which markeda dramatic shift in the government'sthinking on the regulation of all forms ofgambling. These plans were fuelled by thefinal ruling of the Dutch Council of State inthe post CJEU case Betfair/Ministry ofJustice (Case 258/08). The supremeadministrative court held that the Dutchlicensing procedure is in breach of EU lawbecause the procedure failed to complywith the principles of non-discriminationand transparency.The existing objectives of Dutch gaming

policy, namely consumer protection andcombating criminality and illegality, willremain the same. However, the manner inwhich these objectives are given effect isnow subject to reform. The State Secretaryannounced plans to: i) introduce a licensingsystem for remote gaming in 2012(currently subject to a total ban); and ii) in2015 to shift away from monopolies in theoffline sector (and possibly the privatisationof state-owned Holland Casino) to enablecompetition between operators. Underthese plans all operators will function onthe basis of licences awarded in a

consistent, transparent and non-discriminatory manner.The liberal policy plans were followed by

critical debates in parliament wherebyDutch MPs argued that the government'splans were too vague and that uncertaintyprevailed. They were concerned about thepossible harmful side effects of regulatingremote gaming such as the impact on theprevalence of gambling addiction and onrevenues generated for good causesand sports. Subsequently, the Ministry has

instructed external parties to conductstudies into remote licensing/taxationscenarios, potential cannibalisation effects,gambling addiction, technical andoperational compliance requirements forremote gaming licences and finally a studyinto scenarios for the effective digitalenforcement of illegal remote gaming. Insome of these studies our firm plays animportant role by providing legal expertisefrom the sector's perspective. A bill for theregulation of remote gaming is nowexpected in the first half of 2012.Nevertheless, a legislative proposal

regarding the introduction of a GamingAuthority (submitted back in December2009) was pending and there was strongconsensus in parliament that the GamingAuthority should be installed as soon aspossible. The legislative proposal wasadopted in the Dutch Senate without anyvotes being cast. The Gaming Authority willformally be operational as of April 1, 2012.Therefore, this article will focus on theobjectives, structure and enforcementpowers of the new regulatory body and thepotential implications for both the offlineand remote sector.

Introduction of the Gaming Authority

Background

The main argument behind theintroduction of the Gaming Authority is toimprove the effectiveness of theenforcement of the Dutch Betting andGaming Act. According to the ExplanatoryMemorandum there is a lack ofenforcement activities against unregulatedgaming activities, especially regardingremote gaming, despite there being a totalban on such offerings in the Netherlands.Neither a B2C nor a B2B remote gamingoperator has ever been criminallyprosecuted for a violation of the Act.This can be explained in a number of

ways. Firstly, because the Act was onlyenforceable through means of criminal lawwhich is considered as impractical,especially regarding foreign-based parties.The former Minister of Justiceacknowledged in parliament that it isdisproportionate and too time-consumingto try such matters before the courts.Strikingly the State Secretary evenmentioned in parliament in 2011 that thePublic Prosecution Department is unwillingto prosecute B2C operators. Secondly, until April 2012, the national

market is regulated directly and solely bythe Ministry of Safety and Justice and otherministries according to the monopoly inquestion and the national Gaming ControlBoard ("College van Toezicht op deKansspelen"), the latter being limited toproviding advice to the government andgenerally regarded as a ‘toothless tiger’.Both the Ministry and the Gaming Control Board do not have any actual

Frank Tolboom

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enforcement instruments. Therefore, as indicated in the

Explanatory Memorandum to the lawintroducing the Gaming Authority, foreffective enforcement it is necessary thatthe Authority is equipped with adequateand proportionate administrativeenforcement instruments.

Main tasks

The Gaming Authority will be awardedthe status of an independent administrativeregulatory body with operational taskswhereby the Ministry will maintain ultimateresponsibility for instigating overallgambling policy. It cannot be excluded thatthere will remain the risk of a dependentrelationship by the Authority leaning heavilyupon the government, or the risk that itprovides (indirect) protection to certain(incumbent) market players. The Gaming Authority will be staffed with

35 full-time employees and an additional13 full-time employees from "Verispect".This organisation was previouslyresponsible for monitoring the slotmachine sector. The Dutch Gaming ControlBoard ("College van Toezicht op deKansspelen"), which advised the Ministryinter alia regarding the allocation oflicences, has already been wound up.The Gaming Authority will be the body

that issues, enforces and revokes licencesand supervises all Dutch licensees. Onceremote gaming regulations are adopted,the Authority will be required to grantremote gaming licences in an open, fairand non-discriminatory manner.Importantly, following the above mentionedBetfair ruling, the Authority is not entitledto automatically allocate and renewlicences in favour of incumbent operatorswithout an open and fair process unlesssuch operators are subject to very strictgovernment control. Therefore, in our viewa preferable position for, or preferentialtreatment of, incumbent operators in thelicensing process will no longerbe possible.The Authority will undertake executive,

enforcement and supervisory tasksconcerning the gaming market in theNetherlands. The State Secretary statedthat the Authority will need to closelycooperate with foreign regulators andmentioned in parliament those in Maltaand Italy as examples. In addition, theAuthority will provide educational services

and will act as knowledge centre for boththe public and other authorities such asaddiction care institutes. In this respect the State Secretary

explicitly mentioned in the parliamentarydebate that high priority will be given to theintroduction of a central register withproblem players. In addition, the Authoritywill keep and regularly update a registerwith self-excluded players which is linkedto both the offline and online sector (notincluding lotteries). As you can imagine,these registers will raise many privacyrelated issues and it remains to be seenhow this will be worked out ingreater detail.

Enforcement powers

Whereas originally only criminalmeasures could be used againstunlicensed gaming operators that exploittheir activities in the Dutch market, theamendment of the Act attributes to theGaming Authority the power to useadministrative measures against bothlicensed operators, (locally) unlicensedB2B and B2C operators, PSPs/ISPs andalso affiliates. These administrativeenforcement instruments should makeenforcement more effective and efficient.The measures consist of:

• Administrative fines: most importantlyboth the Gaming Authority as well asmunicipalities will be entitled toimpose an administrative fine uponboth unlicensed and licensed entitieswhich infringe the Act. The proposedfines could be as high as €760,000 andcan be raised by 10 per cent of theannual revenue. It’s not clear whetherthe total revenue of the company oronly revenues generated in the Dutchmarket will be taken into account. Nextto that the Gaming Authority ormunicipalities could in certaincircumstances impose multiple finesfor the same offence. Failure to objectto the administrative fine means that itbecomes irreversible. A fixed rate of€370 will apply in respect of minoroffences, such as failure to comply withthe prohibition on minors being presentin amusement arcades.

• Administrative orders: administrativeorders may be imposed on entities thathave a physical presence in the

Netherlands. Both the GamingAuthority and the municipalities will beallowed to order physical changes toend violations of the gamingregulations. It can also set a term for the violator to undo a violation, enter and seal buildings and confiscate goods.

• Incremental penalty payment: both theGaming Authority and municipalitieswill be able to impose an order forincremental penalty payments toenforce the gaming regulations. Aviolator failing to cease the illegalactivities will be subject to a penalty fornon-compliance. This order cannot beimposed if an administrative order isalso imposed. These incrementalpenalty payments will mainly beimposed if a licensee does not complywith the rules in relation to the age ofthe participants of games of chance.Participants of the instant lottery,sports betting, lottery, casino andamusement arcades must havereached the age of 18. Secondly,incremental penalty payments can beimposed if there is an infringementwith respect to specific provisionsrelating to gaming machines. Thisinstrument can also be seen as aneffective tool regarding violations ofadvertising provisions.

Criminal enforcement still possible

Although the Gaming Authority primarilyenforces the Act by administrativemeasures as mentioned above, regularcriminal prosecution cannot be excluded.Criminal prosecution by the PublicProsecution Service would generally beused in the case of serious offences of theGaming Act and are considered as the‘ultimum remedium’. The Authority and thePublic Prosecution Service will set up acooperation agreement to dividecompetences for different offences underthe Act. However, the State Secretary already

mentioned instances during discussions inthe Senate in which criminal enforcementis required and desirable, such as: i)repeated serious infringements whereadministrative enforcement fails to havethe desired effect; ii) where theinfringement of the Act is also related toother criminal activities (such as money

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laundering); and iii) in cases whereby aprecedent is needed because criminalprosecution will have a serious deterrenteffect for the rest of the sector.

Blacklisting

As mentioned before, the State Secretaryis facing considerable resistance fromwithin parliament as to his liberal plans forthe regulation of remote gaming. In thelatest debate on September 7, 2011, in theHouse of Representatives, which wasscheduled to discuss the Gaming Authority,several MPs took the opportunity toquestion the State Secretary regarding theregulation of remote gaming. Several MPs pushed the State Secretary

on enforcing the current prohibition againstunlicensed operators and ensuring thatsuch operators will not qualify for remotegaming licences in the future. It is withinthis context that the State Secretary statedthat he would undertake blacklisting assoon as possible as a means to ensure theblocking of financial transactions betweenNetherlands-based financial serviceproviders and unlicensed operators.Currently many remote operators have

been receiving so-called "cease and desist"letters. These actions are being takenbefore the opening up of the remotegaming market, which theoretically meansthat any remote gaming operator targetingthe Dutch market and accepting Dutchplayers could be addressed. Operatorsfailing to comply with the conditions set outin the letter will be included on the blacklist. The Gaming Authority will maintain and

regularly update the actual list ofoperators. Details of operators listed willbe sent to the Nederlandse Vereniging vanBanken ("Dutch Banking Association")which will forward this information to itsmembers so that they can take measuresto stop providing financial transactionservices to unlicensed operators. However, there is considerable

controversy with respect to the legal basisfor the black-listing process and itsenforceability. There is currently no specificact or legislation prohibiting the facilitationof financial services to unlicensed gamingoperators. Although the State Secretary isinconsistent in his statements, he seeks toinclude the provision of financial servicesthrough a broad interpretation of the term‘promotion’ in the prohibition of thepromotion of illegal games of chance(Section 1(b) of the Act).

There is, however, no basis in thelegislative history of the Act nor in any caselaw for such a broad interpretation. In ouropinion, the promotion of participation ingames of chance pursuant to Section 1(b)of the Act pertains solely to publicity andadvertisements for games of chance andnot to the provision of financial services. Itseems that in the current situation theMinistry is stretching the connotation ofArticle 1(b) of the Act beyond its originalintent in order to be able to tackle remotegaming operators.Also quite remarkable is the fact that the

State Secretary in the same discussionsstated that he would consider thepossibility of implementing provisions intothe Act that would enable ISP and PSP-blocking. The fact that ISP and PSP-blocking need a legal basis in theannounced reform of the Act could beunderstood as suggesting that there isindeed no such legal basis at the moment.Another legal ground for the blacklisting

process would be Customer Due Diligenceregulations. Based on general KYC-requirements established in financialregulations, banks are entitled to(voluntarily) break off their relationshipwith 'illegal' operators.

Implications for the sectors

As we have experienced with theintroduction of similar regulators in theNetherlands (such as the "OPTA":regulator for the electronic communicationsector), it’s not inconceivable that theGaming Authority will show its teeth fromthe very beginning to make a statementand anchor its position in the political andregulatory landscape. Although of course itis difficult to predict, it cannot be excludedthat the Authority will be particularly activefrom the start, possibly through especiallytargeting entities with a local presencewhich clearly act in violation of gamingregulations and which could be addressedeasily and effectively.

Offline sector

In the last couple of years the incumbentmonopoly players faced much criticismfrom parliament regarding their extensiveadvertising activities and policy regardingconsumer protection. However, it wasdifficult for the government to effectivelymonitor and control the incumbentoperators because their only enforcement

alternative was to revoke the licence whichwas considered as disproportionate. Nextto that it was not practicable to revoke thelicence of a monopoly player because itwould then create a large vacuum in termsof supply and revenue generation.The State Secretary explicitly mentioned

that specific attention will be given tomarketing activities. An amendment to theGaming Authority bill has been tabled andapproved which states that the Authoritymust provide specific regulations relatingto the careful and balanced marketing andpromotional activities by licensees. In thiscontext it is possible that the Authority willundertake targeted actions againstexcessive advertising of the incumbents. Next to that it must also be noted that

we are still awaiting a final decision fromthe Dutch Supreme Court in the post CJEUcase De Lotto/Ladbrokes (C-258/08), whichessentially deals with the question to whatextent a monopoly operator can advertiseand make games attractive when the aimof the restrictive legislation is to preventcrime and problem gambling.

Remote sector

According to the former Minister ofJustice, Mr Donner, action againstoperators of online games of chance willbe one of the highest priorities for theGaming Authority. Although some MPs arepressuring the State Secretary to takeimmediate enforcement action againstcurrent "illegal" unlicensed remote gamingoperators and to disqualify them fromfuture licensing procedures, it must benoted that regarding the latter the StateSecretary was hesitant to comply withthese calls. Nevertheless, currently theMinistry (and as from April 1 the Authority)will maintain a blacklist with "illegal"operators on the basis of whichenforcement could take place. It remains to be seen how the Authority

will react to currently unlicensed operatorsuntil a new remote licensing regime is inplace. Hopefully, there is an awarenessthat, apart from a legal point of view that atthis moment this sanctioning policy cannotbe considered legitimate in view of theBetfair ruling, a blackout approach has thepotential to be highly counterproductive.The objectives behind regulating theremote gaming market will be frustrated ifeither the majority of operators areunsuccessful in future license applicationsor if operators are required to stop serving

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Dutch consumers in the run-up to licensing. There is a danger that their current

consumers will fall into the hands of thosewho have no intention of obtaining alicence. The Authority is, however,designed as a body independent from theMinistry and it remains to be seen how the Authority will actually act in thetransitional period up to the new remotelicensing regime.

If and when the Authority will use itsadministrative enforcement powers, it mustbe noted that the administrative measurescannot be easily executed abroad.Therefore, we anticipate at this momentthat foreign-based entities cannot beeffectively addressed by the Authority. TheState Secretary, however, announced thatan external party is currently conductingresearch into different scenarios foreffective and efficient digital monitoringand enforcement of (cross-border) illegalremote gaming activities.

Nevertheless, administrativeenforcement instruments may easily beimposed and enforced towards localentities or foreign entities with any assets,a subsidiary or agency in the Netherlands.Such entities with a presence in theNetherlands could face severeadministrative penalties and fines wheninfringing the Act. In this context marketingof gaming related businesses (affiliatemarketing) will likely be more complicated.

Apart from administrative enforcement,regular criminal prosecution by the PublicProsecution Service cannot be excluded,but the chance of such action is notaffected by the introduction of the Authority.

Conclusion

2012 will be the year in which the legallandscape for (remote) gaming in theNetherlands undergoes a substantialredesign. While the Dutch government is

shaping new remote gaming policy andintending to present a remote gaming billin the first half of this year, the GamingAuthority will already become operationalas of April 2012. These developments willcreate both opportunities and risks forparties active on the Dutch gaming marketsuch as operators, software companies,PSPs and media companies.

The Authority will actually have teeth toeffectively enforce current and future Dutchgaming regulations which couldparticularly affect local-based entities orforeign entities with assets in theNetherlands. Nevertheless, it remains tobe seen how the Gaming Authority willbehave towards market players in thetransitional period until the new remotegaming licensing regime unfolds. Without atransparent, sustainable and viableregulatory framework which is compliantwith EU law, difficulties will remain withrespect to enforcement.

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